Strategic Incentives for Pillar Two Adoption

25 Pages Posted: 22 Jul 2022 Last revised: 15 Aug 2022

See all articles by Wei Cui

Wei Cui

University of British Columbia (UBC), Faculty of Law

Date Written: July 13, 2022


I analyze countries’ strategic incentives for adopting elements of the OECD’s Pillar Two proposal for reforming international taxation. I treat the three components of Pillar Two—the Income Inclusion Rule (IIR), the Under-Taxed Profits Rule (UTPR), and the Qualified Domestic Minimum Top-Up Tax (QDMT)—as independent of one another. Countries are assumed to make strategic decisions about whether to adopt each component simultaneously with other countries facing similar choices, each aiming to maximize its own objectives.

I argue that although Pillar Two’s designers aimed to maximize strategic interactions among participating countries, overall, remarkably few incentives for adoption emerge. In particular, contrary to what many have supposed, there is no revenue or other conventional incentive for adopting the UTPR, and certain unusual ideological motives are needed. Further, neither QDMT nor IIR adoption is necessarily a rational response to the UTPR, therefore even assuming specific ideological motives, UTPR adoption incentives may be lacking. I also show that no IIR adoption incentives arise from the apparent competition among parent jurisdictions to apply IIRs, and because Pillar Two designers implicitly postulate mutually incompatible incentives—sometimes countries are assumed to be national-income-maximizing and other times not—IIR and QDMT adoption incentives are indeterminate.

Overall, the narrative perpetuated by proponents of Pillar Two, that a country that fails to adopt the IIR, UTPR, or QDMT would be leaving “money on the table,” is unfounded. Moreover, this narrative—that countries should adopt Pillar Two as a defensive measure so as to prevent other countries from predating on their tax bases—is in obvious tension with the OECD’s previous efforts (especially before the October 2021 political statement) to cast Pillar Two as a cooperative endeavor.

Keywords: Global minimum tax, international taxation, OECD BEPS, Pillar Two

JEL Classification: F23, F55, H25, H73, H87, K34

Suggested Citation

Cui, Wei, Strategic Incentives for Pillar Two Adoption (July 13, 2022). Available at SSRN: or

Wei Cui (Contact Author)

University of British Columbia (UBC), Faculty of Law ( email )

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